Inside tip for start-ups and small business - the free stuff!
June 24, 2014
Continuing our series on managing cash flow today we look at the free stuff and why you should never spend money you don't have!
It is a trap for young players and many in small business fall into it very early on. In fact US data shows that 50% of small business will fail in the first year and a staggering 95% will close the doors within five years. Three other stats important to know:
≥ 40% of small businesses are profitable.
≥ 30% break even.
≥ 30% are continually losing money.
This article is going to carry a very simple message to help you manage your costs and outgoings by using one tried and tested method: never spend money that you don’t have! You know where possible don’t put yourself into an immediate debt position by buying things you cannot afford. Buy things when you have the money to pay for them wherever possible and be wary of overdrafts at the bank because you may find yourself on the never ending wheel of paying everyone else before yourself.
It is a temptation to spend money because you can also convince yourself that in order to make money you need to spend it. That may be the case when it comes to things that are functional and absolutely needed by your business to operate (such as a coffee machine for a café or tooling equipment for a manufacturing plant) but in reality much of what we spend money on is just accumulated junk or unnecessary stock that we may never be in a position to shift.
Two weeks ago a café owner in New York was worried that she may have to spend thousands of dollars on a new refrigerator to hold soda pop. When we told her she didn’t have to and she should speak to the supplier or manufacturer of the soda pop and ask what the marketing rebate was to help cover the costs she called back and said she struck a deal where her outlay was zero.
In another case we spoke with an IT Start-Up in Australia who was wanting advice on how to finance two computer servers, three new lap-tops and some other hardware. He had been losing sleep for about a month and was about to finance it against his home with his bank. We told him that he could actually get the equipment for free if he turned to Google and put the following search criteria in “free stuff” websites. See what we know, which is somewhat of a secret, is that there are any number of people and organisations giving things away for free!
Basically, he turned to a site called Gumtree and within a week they had sourced all of the equipment they needed for less than $300. How much had he been quoted?
More than $15,000! That $15,000 would have introduced that start-up business to a world of pain in so far as he would have had to pay interest to the bank, the $15,000 would have been built into a cost within the business that would have to be recovered through sales (which were not happening in bulk at that stage) and no doubt stress at work would have mean stress at home.
So, the key message here is always look for alternative ways of getting what you need before you outlay cash for something new. Never spend money you don’t have because you will just get yourself into debt and you don’t want to become the 60%!
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